Stewardship can be defined as the use of influence in pursuit of an outcome. Stewardship comprises engagement and voting, but also involves using these tools in tandem with each other as a form of escalation.

While outcomes are difficult to attribute to a particular investor engagement (often results are a combination of consumer, NGO, employee, regulation, and shareholder input, as well as corporate board and management decisions), stewardship should prompt change and progress, where the company undertakes actions that it might not otherwise have done, or would have done but at a slower pace. We don’t only want to point the finger at companies and criticise their behaviour but encourage actions to build resiliency and achieve long-term success.

Stewardship has evolved considerably in recent years. Unregulated and undefined, stewardship was often a bolt on, rather than core to the investment thesis. Meetings with companies were cordial, but unproductive.

For a few reasons this is changing. Investors of all types are becoming increasingly informed about the impacts their portfolio companies are having. They are expected as universal owners to address sustainability risks and create long-term portfolio value. Regulators have begun to introduce voluntary, and increasingly, mandatory stewardship disclosure requirements. Clients and savers have begun to expect more of their asset managers, with more and more attention being given to shareholder resolutions, particularly on climate change. Stewardship continues to evolve with a focus on achieving outcomes, collaborating to address systemic issues (acknowledging the limits to individual company engagements which address idiosyncratic risks) and engaging in public policy dialogues.

This holistic view is very much how we think of stewardship at Cardano. Here’s our 10-point plan for achieving effective stewardship

Knowing how and when to use escalation is essential to successful, impactful stewardship. Although just as important is developing a thorough understanding of the complexities of our engagement asks. We aim to have meaningful, solutions-oriented discussions by diving deep into topics and developing our knowledge of different sectors’ transition pathways and how issues play out across value chains. An example of this is the collaborative engagement program we developed ‘Satellite-based engagement towards zero deforestation’. Running into its third year, along with a group of global investors, we engage with companies that have palm oil and other commodities like soy and beef within their supply chains. The target companies include producers, traders, consumer goods companies and retailers. We support the engagements with satellite imagery of deforestation incidents, we develop our knowledge by speaking with companies across the value chain to understand the interactions, we learn about the role of regulation, the nuances of social implications, and the importance of financial incentives for suppliers. Building a deeper understanding of the topic enables us to have constructive dialogues with company boards and management and fosters open communication channels and willingness to work together.

Besides engagement, voting sends a message to company management to prioritise sustainable practices and to invest in adapting their business models to account for the sustainability transitions underway. Underlying our voting decisions is a detailed and comprehensive voting policy that we update annually. The policy serves as guiding principles for consistent and transparent voting decisions. Linked to voting is engagement with proxy voting advisors. Beyond ensuring that our own votes are cast in line with our custom policy, it’s important to advocate for proxy advisors’ default recommendations and advice to align with long-term decision making. Given the influence they have, encouraging them to strengthen their recommendations on sustainability topics should be part of an overall stewardship strategy to help move the market forward towards being more resilient.

We believe stewardship is the most important tool in the investor tool box in driving sustainability outcomes. We will continue to evolve our approach over time to remain effective.